Random Thoughts #12: Financial Freedom
I just read an article about financial spring cleaning. Many readers weighed in with comments. Sometimes I think I could write a column on personal finance!
I'm now nearly 55 and my hubby will turn 59 later this year. We raised 3 kids & invested for their college years ago. Our oldest will still have enough for a down payment on a house after she graduates from NYU law school to the tune of $180,000, even though she went to UC Berkeley for 4-1/2 years and went to UCLA grad school (with no scholarship) for 2-1/2 years. Our second will be able to graduate from med school w/ a similar nest egg. Only our youngest may have some trouble paying for grad school, but we have plenty in reserve to help her out if necessary.
The bad thing is that our three kids have so much in assets that they don't qualify for any financial aid whatsoever. But is this really so bad?
As for my hubby & me, we have plenty for retirement so we work only because we enjoy what we do. It is nice to have this Financial Freedom.
It's not like my hubby & I have fabulous high-paying jobs. He is an engineer and started at only $18K/year, and I stayed home with the kids until I was 45 years old. Right now our combined pay is <$200K. So yes, this puts us in the upper percentiles for pay - we're not janitors or clerks - but nor are we investment bankers or top management (who are paid obscene and undeserved amounts of money, in my view).
So, how did we do it?
Generous grandparents and relatives helped, and so did some investment luck. My parents gave some stocks to our children - but not a lot. Just 100 shares here, 100 shares there. When interest rates were very high, they spent a couple of thousand dollars to buy a 10,000 CD for our oldest. All stocks were in dividend reinvestment. As for luck - you need it. And we had it. Sometimes. My parents gave our oldest 100 shares of General Electric about 25 years ago. It wasn't worth much at that time - perhaps the value was $1,000-$2,000. However, the stock split, and split and split again. Now she has nearly 2000 shares at $34/share - you do the math! My parents gave our second child 100 shares of ATT. At first that seemed like a great gift. ATT gave good dividends and it was considered to be a very good, solid stock. Well, that one languished and although it gave off some nuisance spinoffs and is worth more than when our son first received it, it isn't worth a whole lot more.
I also was very disciplined. When I was young, I was very poor, but managed to spend half a year in Europe for only $500 - less than $100/month. I made some good Scottish friends who taught me a trick or two about being frugal. Shortly thereafter, I read a great book by Andrew Tobias called "The Only Investment Guide You'll Ever Need." My key takeaway: "A Penny Saved is Two Pennies Earned."
So: I saved every penny that I could. And then, I invested it. I didn't want to lose any of our hard-earned and hard-saved money (it took a lot of self-sacrifice!), so my investments were usually very conservative. At the same time, I knew (from the Tobias book) that you had to take some risks, because inflation would eat up money kept in a standard savings account. My general rule was this: I would buy stocks only if they paid interest rates as good or better than what we earned in an interest-bearing checking account, and we then did dividend re-investment. My mother told me about dividend reinvestment and I also read about how powerful it could be, especially back in the 80's and 90's when no one charged anything for it. When interest rate were high, I also bought some zero-coupon bonds, and when our state put out tax-free zero coupon college bonds, I scraped together some cash and bought those also. I also put our money into IRA's when they first came out. We also bought a house when interest rates were high and house prices were low.
Investing can be stressful & time-consuming. There was no on-line investing 15-20 years ago. I spent nearly an hour on hold to buy the zero-coupon college bonds, and I really sweated over which ones to buy.
But it sure paid off, many years later! I'm not an investment guru or genius, but here's what worked for me:
1. SAVE when you are YOUNG.
2. First fund your 401K, then your IRA, then (if you have children) your kids' 529 accounts (but don't overfund your kids 529 accounts as the money can ONLY be used for college)
3. Invest in income-producing things such as real estate, dividend-paying stocks (w/low P/E ratios), & bonds before getting too wildly speculative.
4. If you give your kids money (we bought various stocks for them), don't let them know that they are independently wealthy until they are older. Otherwise, what incentive do they have to work?
The hardest part for many people may be saving when they are young. My husband was also very poor so he and I were of the same saving mentality. It was probably easier for us to be self-sacrificing than it is for our suburban kids with their comfortable lifestyle.
I was VERY disciplined and always looked for ways to save $$$. For a long time, we had only one car (bought used) - big savings on insurance, repairs, maintenance, etc. We had no cell phone until recently. We still have no cable TV. We try to leave a "light footprint" and I try to consume as little utilities as I can while still being comfortable (I switched all our lightbulbs to compact fluorescent, I keep the thermostat low in the winter & high in the summer, etc.). I ride my bike to the store when I can and try to be efficient in use of our car (our most recent purchase - and we are in our peak earning years - was a Honda Civic). When our relatives gave our children monetary gifts, I put it into their college fund. When our children were given toys or clothes that I thought were too expensive or impractical, I often returned them and bought diapers or food with the money. Of course I did this only when they were too little to know any better. When they were older, I'd sometimes asked them if they REALLY wanted a certain gift - if they didn't care, I returned it. When I was in college, I bought clothes at Salvation Army or Goodwill, much to my mother's horror (and she was even more horrified when someone would compliment me on my clothes, and I'd say, quite proudly, that it cost only 50 cents at Goodwill!). And for most of my college years, I rode a bicycle. I never bought convenience food. We never ate out until my hubby got his job, and when we ate out (maybe once a week, before kids, as part of our weekend entertainment), we ate only at cheap ethnic restaurants - our bible was a book called "The Cheap but Good Chicago Restaurant Guide." Whole chickens used to be cheaper than their parts, so I used to buy a chicken, cut it up, and make 4-5 meals out of it (before we had children, that is). In college, my husband and I lived on $1/day for food! We often had friends joining us for dinner, too!
We always looked for big ways to save $$$, too. Having only one car was a big savings. Another was our apartment. When my husband started working, most of his colleagues were also fresh out of school like us. However, they lived in fancy apartment complexes that cost $500-$600/month. We always looked for the cheapest apartment we could find - $200-300/month. My husband's colleagues would buy new furniture, or rent furniture (we all knew we were only going to be living in the area for about 2-3 years before being sent out "on the road"). We looked for a used furniture store & bought all of our furniture for a few hundred dollars at most. Our biggest splurge was a used piano (my husband was a passionate piano player - this was his recreation) which we sold for only a little less than we paid. We sold most of our furniture when it was our turn to go "on the road" so our net cost over the few years was very small (especially since we bought everything used).
I didn't buy much for our children, either. Most of their nice things (toys, clothes) came from my mother. When they were too young to care, I bought used clothes, and I accepted all hand-me-downs with gratitude. I was very selective about toys - I only kept toys that I thought had good play value. I found that color pens, scissors, tape, and a big stack of scratch paper was often the best "toy" of all. I did buy selected children's books as we moved frequently and also lived overseas until our oldest daughter was 10. However, when we were in the U.S., I always looked for the nearest public library.
Our big family vacations, once we moved back to the U.S., were car camping trips. I'd spend less than $1000 on a 10-14 day vacation. And we had wonderful vacations to many great national parks!!!
However, as we got older, our backs got more sensitive to the hard ground so we'd mix camping with a night or two at a lodge. This was also a good and reasonably-priced vacation. If the weather was bad, we'd eat out rather than attempt to cook at our campsite.
And did this all pay off!!!
First, our children can all graduate from college debt-free. They all turned out well. One will be a lawyer with an NYU law school degree (she said starting salaries will be $100-$150K if she works for a private law firm), one will be a doctor, and the youngest will do well in whatever she ends up deciding to do (she is a top student and extremely motivated).
Second, my hubby & I have Financial Freedom. We have no debt and we could live off our interest and dividends if we both lost our jobs tomorrow. This is just incredibly empowering. First, we both work because we like what we do, not because we need the money. If our jobs ever get tiresome or stressful, we can walk away from them. No worries about mortgage, paying for kids' college tuition, etc.
Third, we can now live very comfortably when we are older and NEED more creature comforts. For example: although I don't mind a short camping trip in a place with soft ground (e.g. the mossy Pacific NW or perhaps a place like Indiana Dunes where we sleep on sand and not rock like in Colorado), I do now relish the ability to stay in a motel when we feel like it. When I was young, I was very tough and would travel with three young children & all their bags, but I would never pay for porters, restaurants, & other services. I always made sure I carried enough food, water, & diapers for a worst-case scenario trip (plane delayed, etc. - I had to spend over 12 hours at the Tokyo airport with our three kids, the youngest in diapers). Now, if my husband and I are tired, we'll find a Starbucks and plop down and enjoy a $3 cup of coffee. If we are hungry, we'll look for a restaurant. If we see something interesting - for example, we were in London and I noticed that my favorite opera was playing - we'll just whip out the credit card and pounce on the opportunity. No worries about costs. In fact, I even have all our credit cards on full autopay 'cuz I'm so confident that we'll always have enough to cover.
I can't emphasize enough how great this feels!!!
And if there are ever any grandchildren - we know we'll be in a position to give our kids a head start on providing for their children's college!!!
I'm now nearly 55 and my hubby will turn 59 later this year. We raised 3 kids & invested for their college years ago. Our oldest will still have enough for a down payment on a house after she graduates from NYU law school to the tune of $180,000, even though she went to UC Berkeley for 4-1/2 years and went to UCLA grad school (with no scholarship) for 2-1/2 years. Our second will be able to graduate from med school w/ a similar nest egg. Only our youngest may have some trouble paying for grad school, but we have plenty in reserve to help her out if necessary.
The bad thing is that our three kids have so much in assets that they don't qualify for any financial aid whatsoever. But is this really so bad?
As for my hubby & me, we have plenty for retirement so we work only because we enjoy what we do. It is nice to have this Financial Freedom.
It's not like my hubby & I have fabulous high-paying jobs. He is an engineer and started at only $18K/year, and I stayed home with the kids until I was 45 years old. Right now our combined pay is <$200K. So yes, this puts us in the upper percentiles for pay - we're not janitors or clerks - but nor are we investment bankers or top management (who are paid obscene and undeserved amounts of money, in my view).
So, how did we do it?
Generous grandparents and relatives helped, and so did some investment luck. My parents gave some stocks to our children - but not a lot. Just 100 shares here, 100 shares there. When interest rates were very high, they spent a couple of thousand dollars to buy a 10,000 CD for our oldest. All stocks were in dividend reinvestment. As for luck - you need it. And we had it. Sometimes. My parents gave our oldest 100 shares of General Electric about 25 years ago. It wasn't worth much at that time - perhaps the value was $1,000-$2,000. However, the stock split, and split and split again. Now she has nearly 2000 shares at $34/share - you do the math! My parents gave our second child 100 shares of ATT. At first that seemed like a great gift. ATT gave good dividends and it was considered to be a very good, solid stock. Well, that one languished and although it gave off some nuisance spinoffs and is worth more than when our son first received it, it isn't worth a whole lot more.
I also was very disciplined. When I was young, I was very poor, but managed to spend half a year in Europe for only $500 - less than $100/month. I made some good Scottish friends who taught me a trick or two about being frugal. Shortly thereafter, I read a great book by Andrew Tobias called "The Only Investment Guide You'll Ever Need." My key takeaway: "A Penny Saved is Two Pennies Earned."
So: I saved every penny that I could. And then, I invested it. I didn't want to lose any of our hard-earned and hard-saved money (it took a lot of self-sacrifice!), so my investments were usually very conservative. At the same time, I knew (from the Tobias book) that you had to take some risks, because inflation would eat up money kept in a standard savings account. My general rule was this: I would buy stocks only if they paid interest rates as good or better than what we earned in an interest-bearing checking account, and we then did dividend re-investment. My mother told me about dividend reinvestment and I also read about how powerful it could be, especially back in the 80's and 90's when no one charged anything for it. When interest rate were high, I also bought some zero-coupon bonds, and when our state put out tax-free zero coupon college bonds, I scraped together some cash and bought those also. I also put our money into IRA's when they first came out. We also bought a house when interest rates were high and house prices were low.
Investing can be stressful & time-consuming. There was no on-line investing 15-20 years ago. I spent nearly an hour on hold to buy the zero-coupon college bonds, and I really sweated over which ones to buy.
But it sure paid off, many years later! I'm not an investment guru or genius, but here's what worked for me:
1. SAVE when you are YOUNG.
2. First fund your 401K, then your IRA, then (if you have children) your kids' 529 accounts (but don't overfund your kids 529 accounts as the money can ONLY be used for college)
3. Invest in income-producing things such as real estate, dividend-paying stocks (w/low P/E ratios), & bonds before getting too wildly speculative.
4. If you give your kids money (we bought various stocks for them), don't let them know that they are independently wealthy until they are older. Otherwise, what incentive do they have to work?
The hardest part for many people may be saving when they are young. My husband was also very poor so he and I were of the same saving mentality. It was probably easier for us to be self-sacrificing than it is for our suburban kids with their comfortable lifestyle.
I was VERY disciplined and always looked for ways to save $$$. For a long time, we had only one car (bought used) - big savings on insurance, repairs, maintenance, etc. We had no cell phone until recently. We still have no cable TV. We try to leave a "light footprint" and I try to consume as little utilities as I can while still being comfortable (I switched all our lightbulbs to compact fluorescent, I keep the thermostat low in the winter & high in the summer, etc.). I ride my bike to the store when I can and try to be efficient in use of our car (our most recent purchase - and we are in our peak earning years - was a Honda Civic). When our relatives gave our children monetary gifts, I put it into their college fund. When our children were given toys or clothes that I thought were too expensive or impractical, I often returned them and bought diapers or food with the money. Of course I did this only when they were too little to know any better. When they were older, I'd sometimes asked them if they REALLY wanted a certain gift - if they didn't care, I returned it. When I was in college, I bought clothes at Salvation Army or Goodwill, much to my mother's horror (and she was even more horrified when someone would compliment me on my clothes, and I'd say, quite proudly, that it cost only 50 cents at Goodwill!). And for most of my college years, I rode a bicycle. I never bought convenience food. We never ate out until my hubby got his job, and when we ate out (maybe once a week, before kids, as part of our weekend entertainment), we ate only at cheap ethnic restaurants - our bible was a book called "The Cheap but Good Chicago Restaurant Guide." Whole chickens used to be cheaper than their parts, so I used to buy a chicken, cut it up, and make 4-5 meals out of it (before we had children, that is). In college, my husband and I lived on $1/day for food! We often had friends joining us for dinner, too!
We always looked for big ways to save $$$, too. Having only one car was a big savings. Another was our apartment. When my husband started working, most of his colleagues were also fresh out of school like us. However, they lived in fancy apartment complexes that cost $500-$600/month. We always looked for the cheapest apartment we could find - $200-300/month. My husband's colleagues would buy new furniture, or rent furniture (we all knew we were only going to be living in the area for about 2-3 years before being sent out "on the road"). We looked for a used furniture store & bought all of our furniture for a few hundred dollars at most. Our biggest splurge was a used piano (my husband was a passionate piano player - this was his recreation) which we sold for only a little less than we paid. We sold most of our furniture when it was our turn to go "on the road" so our net cost over the few years was very small (especially since we bought everything used).
I didn't buy much for our children, either. Most of their nice things (toys, clothes) came from my mother. When they were too young to care, I bought used clothes, and I accepted all hand-me-downs with gratitude. I was very selective about toys - I only kept toys that I thought had good play value. I found that color pens, scissors, tape, and a big stack of scratch paper was often the best "toy" of all. I did buy selected children's books as we moved frequently and also lived overseas until our oldest daughter was 10. However, when we were in the U.S., I always looked for the nearest public library.
Our big family vacations, once we moved back to the U.S., were car camping trips. I'd spend less than $1000 on a 10-14 day vacation. And we had wonderful vacations to many great national parks!!!
However, as we got older, our backs got more sensitive to the hard ground so we'd mix camping with a night or two at a lodge. This was also a good and reasonably-priced vacation. If the weather was bad, we'd eat out rather than attempt to cook at our campsite.
And did this all pay off!!!
First, our children can all graduate from college debt-free. They all turned out well. One will be a lawyer with an NYU law school degree (she said starting salaries will be $100-$150K if she works for a private law firm), one will be a doctor, and the youngest will do well in whatever she ends up deciding to do (she is a top student and extremely motivated).
Second, my hubby & I have Financial Freedom. We have no debt and we could live off our interest and dividends if we both lost our jobs tomorrow. This is just incredibly empowering. First, we both work because we like what we do, not because we need the money. If our jobs ever get tiresome or stressful, we can walk away from them. No worries about mortgage, paying for kids' college tuition, etc.
Third, we can now live very comfortably when we are older and NEED more creature comforts. For example: although I don't mind a short camping trip in a place with soft ground (e.g. the mossy Pacific NW or perhaps a place like Indiana Dunes where we sleep on sand and not rock like in Colorado), I do now relish the ability to stay in a motel when we feel like it. When I was young, I was very tough and would travel with three young children & all their bags, but I would never pay for porters, restaurants, & other services. I always made sure I carried enough food, water, & diapers for a worst-case scenario trip (plane delayed, etc. - I had to spend over 12 hours at the Tokyo airport with our three kids, the youngest in diapers). Now, if my husband and I are tired, we'll find a Starbucks and plop down and enjoy a $3 cup of coffee. If we are hungry, we'll look for a restaurant. If we see something interesting - for example, we were in London and I noticed that my favorite opera was playing - we'll just whip out the credit card and pounce on the opportunity. No worries about costs. In fact, I even have all our credit cards on full autopay 'cuz I'm so confident that we'll always have enough to cover.
I can't emphasize enough how great this feels!!!
And if there are ever any grandchildren - we know we'll be in a position to give our kids a head start on providing for their children's college!!!
Labels: Personal finance
posted by Gaye Marasaki | 1:08 PM
|
0 comments
